As part of a bill to temporarily fund the federal government, federal tax credits for geothermal heating and cooling systems are now back in place. The credits provide a 30% tax savings for installations through December 31, 2019. Smaller credits are available through 2021. Even homeowners who installed a geothermal system in 2017, after the original tax credits expired, can now claim the 30% credit.
Tax Credit Starts at 30% through 2019
At the end of 2016, congress extended tax credits for solar energy systems for several more years but left geothermal heating and cooling systems out of the extension. The credits for solar have built into them a reduction as time goes on, and that same approach has been taken with geothermal HVAC systems. The initial renewal is at the same 30% rate as was in place from initial passage in 2008 until they expired on December 31, 2016.
Tax Credit Amounts
· From January 1, 2017-December 31, 2019 – 30%
· From January 1, 2020-December 31, 2020 – 26%
· From January 1, 2021-December 31, 2021 – 22%
Rules are Mostly the Same
Rules for the geothermal federal tax credit are mostly the same as they were before the extension. The main exception is a new clause that allows for commercial projects to be in progress at the end of the tax period, rather than having to be in service. This makes a difference in that you can start a project late in the year that will not be up and running and it will still be eligible for the tax credits. However, this is only important in 2019, 2020 and 2021 when there are changes in the tax credit rate.
· There is no maximum credit. You get the true percentage based on the year you install the Geothermal HVAC system.
· Systems must be placed in service on or before December 31, 2021.
· The geothermal heat pump must meet federal Energy Star criteria. All geothermal systems that we install meet these criteria.
· The tax credit can be taken on any home served by the geothermal system. It does not have the be the taxpayer’s main home. It can be a vacation home.
· Can be combined with energy efficiency upgrade tax credits
· Can be carried forward if you don’t have enough tax liability to use the entire credit in one year
How the Federal Tax Credit Makes Geothermal a Great Value
Costs of geothermal systems vary greatly depending on the size of your home and the installation of the loop system. For purposes of illustrating the savings from the tax incentive, we’ll use the example cost of installing the geothermal system of $25,000. A system costing $25,000 would not be unusual, but installation could easily cost more or less.
Here’s what your actual installed price will look like after federal tax rebates in 2019.
$25,000 System Price
-$ 7,500 Federal Tax Credit
=$17,500 System Price with 30% Federal Tax Credit
Wait until next year (2020) and you’ll be spending more – $1,000 more for our example system.
$25,000 System Price
-$ 6,500 Federal Tax Credit
=$18,500 System Price with 26% Federal Tax Credit
*Disclaimer: The tax credit information contained within this website is provided for informational purposes only and is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IRS).